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Published by ajithsubramanian

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Published by: ajithsubramanian on Sep 17, 2011
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01/26/2014

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PART 1 LESSON 2BUDGETING METHODOLOGIES
LESSON 2 BUDGETING METHODOLOGIES
CONTENT
1.Budget Framewor2.Master Budget3.Operating Budget4.Financial Budget5.Methods of preparing BudgetsRukshiCA1
 
PART 1 LESSON 2BUDGETING METHODOLOGIES
Budget Framework:
An organization prepares budget for organization as a whole andfor each of its subunits. Budgets provide a framework of reference, a set of expectationsagainst which actual results can be compared. Organizations compare actual performancewith expectations and plan again after considering the feedback 
Budget Framework 
 
1.MASTER BUDGET
: coordinates all the financial projections in theorganization’s individual budgets in a single organization wide budget. Itencompasses expectations from both operating decisions and financing decisions.Operating decisions relate to acquisition and use of scarce resources. Financingdecisions center on how to get the funds to acquire resources. The term master in“master budget” refers to it being a comprehensive, organization wide set of budget.RukshiCA2
 
PART 1 LESSON 2BUDGETING METHODOLOGIESAn annual business plan or master budget called a summary budget is the formal budgetapproved by the top management. Budget is classified based on capacity, coverage, period or conditions. The following flow chart will give an idea.The master budget gives a forecast profit & loss A/c and forecast B/S. The master  budget is a complete presentation of the operating plans of the entire company for therelevant budget period. It is a basis for the successful financial planning and cost control.In the master budget costs are classified and summarized by types of expenses as well as by departments.Thus the master budgets throw very useful information to the mgt. the master  budget often called summary budget represents a standard for the achievement of whichall the departments will work. In accounts closing the actual happenings are recordedconsolidated and summarized whereas in master budget the plans for the forthcomingyear are recorded. The master budget is backed by a number of functional budgets.The steps involved in the development of master budget are given bellow.
Preparation of functional budgets for the forthcoming period.
Up and down adjustments to bring about harmony among different budgets.
Preparative of summary budget.
Budgeted P& L A/c.
Budgeted Balance Sheet.
Authentication of master budget by the BOD.RukshiCABudgetsCapacityCoveragePeriod ConditionFixed FlexibleFunctional budgetsMaster  budgetsShort term budgetLong term budgetsBasic budgetsCurrent budget3

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